- Property buyers are being warned of overpaying for low-grade properties
- Boom in regional market prices won't stay for long
- Within the next year the consequences of overbidding will be more significant
Property buyers are being warned of overpaying, particularly for low-grade properties at this stage in the market cycle, according to BuyersBuyers co-founder Pete Wargent.
Mr Wargent said, “It may seem hard to imagine in the current market conditions, but even in prime markets such as Noosa, we saw half a decade of poor property price performance following the onset of the financial crisis.
“Many units bought off the plan in the Sydney and Melbourne construction frenzy of around 7 to 10 years ago have failed to produce meaningful capital gains. The same could be said of some Perth property investments made around 2006.”
“Many regional markets have experienced a huge boom in prices over the past 18 months, and buyers need to recognise that these conditions can’t be sustained once the borders reopen and as new migrants inevitably gravitate towards the capital cities.”
Property boom locations 2021
| State | Area name | Property type | Median price ($) | 12 month price growth (%) |
| NSW | Avoca Beach – Copacabana | House | $1,567,371 | 51.6% |
| NSW | Byron Bay | House | $2,304,301 | 69.2% |
| NSW | Lennox Head – Skennars Head | House | $1,485,601 | 46.3% |
| QLD | Burleigh Waters | House | $1,269,104 | 43.9% |
| QLD | Miami | House | $1,253,870 | 51.8% |
| QLD | Coolangatta | House | $1,385,049 | 60.8% |
| QLD | Noosa Heads | House | $1,820,060 | 44.7% |
| QLD | Sunshine Beach | House | $1,815,457 | 47.1% |
| VIC | Flinders | House | $2,785,167 | 75.2% |
| VIC | Point Nepean | House | $1,234,598 | 54.6% |
Source: BuyersBuyers, 2021
Investors this time around have been less drawn into regional markets for the yield due to lower mortgage rates and lower out of pocket expenses, but still this is not a time to be tempted by apparently high yielding regional investments, which usually come with a commensurate level of risk, said Mr Wargent.
Price growth set to decelerate
RiseWise Property Research founder Doron Peleg said buyers should beware of the risk of overbidding, especially when buying lower quality property.
“As the market was booming over the past year with sizeable percentage price increases, the combination of overbidding and purchasing lower-quality assets had few adverse consequences, as the market tide took almost every property up.
“With decelerated price growth in 2022, and potentially a stagnant market – or even small price reductions – in 2023, the consequences of overbidding will be more significant. So naturally, properties with sub-optimal qualities will experience lower demand as the market cycle moves on and will be more sensitive to price reductions in such conditions.”
Buyers to consider location
Mr Wargent said CoreLogic’s Pain and Gain report has consistently shown that even when the market is booming, perhaps 5-10% of properties can still be sold at a nominal loss even considering this is a time when national property price growth is the fastest it’s been over 30 years.
“Buyers need to remember that the tide will go out eventually. So keep a cool head, research thoroughly, and pay the right price. If you can’t afford to buy a AAA property, then try to focus on location while ticking as many boxes as possible within your designated budget.
BuyersBuyers co-founder Pete Wargent
“You can change many things about a real estate investment, but one thing you can never change is the location, which will always remain fixed in place.”
